Chapter 9 Building a New Venture Team Entrepreneurship: Successfully Launching New Ventures, 2/e Bruce R. Barringer R. Duane Ireland Chapter 9 Building a New Venture Team

Case Study – BrainyBunch Founded in 2008 - a pioneer in International Islamic Montessori - focus: Montessori and English. Started in Kajang - HQ in Shah Alam

In 2013, 58 Brainy Bunch campuses across Malaysia and started operations in India and Singapore.

Talent for drawing attention and networking: Business leaders Media Government agencies College - Early childhood graduates Chemistry – shared vision, mission and values

1. New Venture Team Group of founders, key employees, and advisers - move a new venture - an idea to a fully functioning company. Doesn’t come together all at once. Built as new venture progresses Key employees – hired once – critically needed - afford

Involves more than founders and paid employees. E. g Involves more than founders and paid employees. E.g. boards of directors, boards of advisers, consultants and professionals – for direction and advice.

New ventures - a high propensity to fail. Liability Newness New ventures - a high propensity to fail. Business model – is not tested

Why? Can’t adjust quickly enough to new roles - not an expert Researchers’ findings - the fact that companies - hiccups…3 reasons: Can’t adjust quickly enough to new roles - not an expert Lacks a “track record” with outsiders ‘Overlooked things’

How to Overcome? Assembling a talented and experienced new venture team - one path to overcome these limitations. Team of experts – proven track records Based on merit NOT relationship

2. Separate Elements of a New Venture Team

a. Founder or Founders Characteristics of the founder or founders - early stage - a significant impact – new venture takes shape. Why – vision / address?

Two important issues: Size and quality i. Size Studies have shown that 50% to 70% of new ventures are started by > 1 individual. Started by a team rather than a single individual have an advantage.

Heterogeneous Homogenous Diverse in experience and skill Similar in experience and skill More creative Less creative Conflict is very likely Conflict is less likely Has more potential Has less potential E.g. Marketing and Electrical Engineer E.g. Accountant and Administrator

ii. Quality Several factors are thought to be significant to a founder’s success. Higher education. Prior entrepreneurial experience. Relevant industry experience. The ability to “network” effectively. ***Principle Ethical Values

Preferred Attributes of Founder or Founders

b. Recruiting and Selecting Key Employees Start-ups vary - how critically to add personnel. Founders work alone or employees are hired immediately. Founders draw upon - network of contacts to identify candidates for key positions or go through placement offices at college or university or rely on executive search companies.

c. Board of Directors If a new venture - a corporation (private limited – Sdn Bhd) - legally required to have a board of directors. A panel of individuals - elected by a company’s shareholders to oversee the management of the company.

Roles of BoD A board - made up of both inside directors and outside directors. An inside director – company director / key officer of the company. E.g. CEO / GM An outside director – someone not employed E.g. Non-Executive Director / Board Member

THREE Formal Responsibilities Appoint key officers. Declare dividends / bonus. Oversee the company affairs.

Frequency of Meetings and Compensation Most meet three to four times a year. New ventures - more likely to pay their boards Company stock Ask them to serve on a voluntary basis Pay a cash honorarium.

TWO MAIN Ways a BoD Can Help a New Venture Get Off to a Good Start Function Importance of Function Most useful role is to provide guidance and support to company’s managers. Many founders and CEOs interact with board members frequently and obtain important input and advice. Provide Guidance To lend legitimacy to a company. Well-known and respected board members bring instant credibility to a company. Lend Legitimacy

Attributes of Effective BoD (Group) Regular and clear communication with the CEO Customer-focused point of view Complementary mix of talents Strong ethics Collective decision

Attributes of Effective BoM (Individual) Strong personal and professional networks Respected in their field Strong interpersonal communication skills Ability and willingness to mentor the CEO and top managers Prior experience in the industry

d. Rounding Out the Team: Role of Professional Advisors Board of Advisers Lenders / Investors Other Professionals

i. Board of Advisers (BoA) A panel of experts - asked by a company’s managers to provide counsel and advice on an ongoing basis. Unlike a board of directors, an advisory board possesses no legal responsibility for company - gives nonbinding advice.

Can be set up for general purposes - address a specific issue or need. Syariah, talent management, reward system, leadership, etc

Many people are willing to serve on a company’s BoA than BoD Requires less time. No potential legal liability involved.

Like the members of a BoD, members of a company’s BoA provide guidance and lend credibility to the company.

Board of Advisers Name Profession Role on Advisory Board Tan Sri Dr. Rais Yatim Chairman of IIUM Holdings Adds credibility and provides the company advice on strategies and networking Prof. Dato’ Dr. Tahir Azhar Chairman of IIUM Higher Education Adds credibility and provides the company advice on thinking-out-of-box and practical solutions

Guidelines to appoint a Board of Advisers Disillusioned if they don’t play a meaningful role - company’s development and growth. Should look for board members - compatible and complement one another – vision, working values, experience, and expertise.

Important Note: When inviting people to serve on BoA - should carefully spell out rules in terms of access to confidential information.

Signaling When a high-quality individual does agree to serve on a board of a company - in essence, ‘signaling’ - potential to be successful. Without a credible signal - difficult for potential customers, investors, or employees to identify high quality start-ups.

ii. Lenders and Investors Have a ‘vested interest’ in companies they finance - causing them to be very involved. Help new companies by providing guidance and lending advice. They assume the natural role of providing financial oversight.

Beyond Financing and Funding: Ways Lenders and Investors Add Value Provide insight into the industry and markets Help identify and recruit key management personnel Help the venture fine-tune its business model Serve as a sounding board for practical ideas Provide introductions to additional sources of capital Serve on the new venture’s board of directors or board of advisors

iii. Other Professionals Make up a company’s new venture team - vary by company. Solicitor, accountant, business consultant and business coach.

Business Consultants An individual who gives professional or expert advice. Two categories: paid consultants and consultants - available for free or at a reduced rate through a nonprofit of governmental agency. E.g. Consultant – grant application, setting up a new branch abroad

A business coach is just like a sporting coach A business coach is just like a sporting coach. A sporting coach pushes an athlete to achieve optimum performance, provides support when they are exhausted and teaches the athlete to execute plays that their competition does not anticipate.

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